UPDATE 1-Bank of Canada survey shows low oil price still hurts economy

Mon Jul 6, 2015 11:00am EDT
 
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(Adds details on currency effect and on credit conditions)

By Randall Palmer and Leah Schnurr

OTTAWA, July 6 (Reuters) - Current Canadian business sentiment paints a picture of two economies, according to a Bank of Canada report on Monday, with cheap oil depressing the outlook in petroleum-related industries, but with some promising signs elsewhere.

The central bank's quarterly business outlook survey showed indicators of upcoming business activity remaining low but edging up modestly, supported by a generally positive U.S. outlook.

"However, sales expectations deteriorated sharply in energy-producing regions, where the oil price shock continues to weigh importantly on business sentiment," the bank said of its survey, taken from May 15 to June 10.

Earlier this year, bank Governor Stephen Poloz said the effect of lower prices for oil, a major Canadian export, would be front-loaded in the first quarter, with the economy beginning to recover in the second quarter and with positive forces dominating from around midyear.

But there are concerns the bank has been too optimistic in its growth forecast, and markets and the bank itself will be looking to this survey as well as other data points ahead of next week's interest rate decision.

The business outlook survey said balances of opinion on investment and hiring intentions were still weak, and the number of companies reporting labor shortages restricting their ability to meet demand remained low.

It also noted that many companies reported that the lower Canadian dollar was a welcome development with positive effects on sales.

The weaker currency was having a mixed impact on investment decisions, causing restraint among those facing higher costs for imported machinery, but boosting plans among some exporters that are enjoying higher margins on their U.S.-dollar-denominated sales.

The business outlook survey pointed to an easing of credit conditions over the past three months, but a separate survey of senior loan officers showed business-lending conditions broadly unchanged. (Reporting by Randall Palmer and Leah Schnurr; Editing by Peter Galloway)